Answer to the Question No. 1.

5
Limitations of Ratio Analysis: Ratio analysis is a tool used by different stakeholders to measure
the performance of an organization from different perspective. This ratio also can be used to
compare the performance of an organization in different years or to compare with the
performance of competitors (Weygandt, J. J., Kieso, D. E., & Kell, W. G., 1996). Like many
other things, ratio analysis has some limitations which have impact on tourism and hospitality
accounting policies. Most of the limitations of ratio analysis originate from the financial
statement based on which the ratios are being calculated. General Limitations of ration analysis
are given bellow.
Inaccurate Data: It the data based on which ratios are calculated are false, the ratios
which will be produced by using this data, will not give the actual picture of performance.
Different Meanings are put on Different Terms: Different elements of ratio analysis
are not defined in concrete meanings. For example, a firm may use profit after tax and interest,
on the other hand another firm may use profit before tax and interest. In that case the
performance of the two firms cant be a compared.
Incomparable: If two companies follow different accounting policies, their performance
cant be compared for that particular financial year. For example, one company follow straight
line depreciation method and another company may follow diminishing value method.
Price Level: Change in price level affect values and it questions the credibility of the
ratio analysis. But no consideration is given to changes in price level.
Qualitative Factors: Financial Ratios are analyzed on the basis of quantitative factors
not considering the qualitative factors attached with a financial transaction. For example, loan
may be given on the profitability or financial performance of a firm but ultimately the loan
repayment also depends on the morality of the borrower himself/herself.
Standard Ration: It is difficult to evolve a standard ratio for all times as the economic
and financial scenario are changing continuously. Again the underlying conditions for financial
performance of different organizations and industry are different.
Window Dressing: Financial ratios may be affected window dressing. Manipulation and
window dressing may affect the financial statements and thus it will affect the financial ratios.
Past Data: Ratios are being calculated from past data. For that reason, it cannot be
efficient forecasting tools to predict the future.

Answer to the Question No 2.1
Financial and Management accounting are two forms of accounting used in organization to serve
the purpose two different stakeholders. These two are compared and contrasted bellow
Managerial Accounting is type of accounting which provide information to the
people inside the organization who direct and control its operations. It will serve the purpose of
planning, controlling and decision making (Drury C. 2007). On the other hand, financial
accounting is concerned with providing information to the external stakeholders such as
stockholders, creditors, etc. For Example, managerial accounting will provide information as to
the efficiency of hotel management in terms of cost effectiveness, and again financial accounting
will provide information as to the financial performance of hotel by calculating data as to the
profit made in a particular year.
Managerial accounting will provide information with the help of which the
operation of an organization will run. It will provide information for planning the future. So it
can be said that managerial accounting is future oriented. On the other side financial accounting
will provide summarized data of past transections. So it is past oriented. This summarized may
be an important input to future planning but this cant help in financial decision in future of
forecasting the future.
Managerial Accounting assists in planning, recording and controlling thus helping
in decision making. Financial accounting helps in investment decision making and credit rating.
Preparing financial accounting report is must for publicly traded hotel but this is
not mandatory to prepare a managerial accounting report.
The information originated from managerial accounting should be flexible enough
so that it can provide information in accordance with the situation. On the contrary financial
accounting data are expected to be objective and verifiable.
Timeliness may be more important for a manger rather than accuracy. It may be
made a decision regarding operation, if the decision maker waits a week. In this mean time
opportunity may go away to another competitor. Managerial accounting is required to provide
information on due time. Here time is more important than precision. But in case of financial
accounting precision is more important than timeliness.
Managerial accounting provides information in both monetary and non-monetary
forms. But financial accounting deals with information which can be expressed in terms of
monetary values. But in business there are some crucial issues like customer satisfaction which
cant be expressed in monetary value.

References:
1. Weygandt, J. J., Kieso, D. E., & Kell, W. G. (1996). Accounting Principles (4th ed.).
New York, Chichester, Brisbane, Toronto, Singapore: John Wiley & Sons, Inc. p. 801-
802.
2. Drury C. (2007), "Differences between management accounting and financial
accounting", Management and Cost Accounting, p. 7, ISBN 9781844805662